In case anyone entertained doubts, Hillary Clinton’s Monday speech on the economy offered proof positive that the center of the Democratic Party has moved left. Her address contained all the elements of the party’s analysis of 21st-century American capitalism: Economic rewards go only to the rich (“successful CEOs and money managers,” as she put it); corporations reward shareholders and top executives at the expense of investment and employees; the decimation of unions has left workers powerless to demand their share of the revenue they produce; the conjoined sluggishness of investment, worker income and consumption has made the recovery anemic.
So, too, her proposed remedies — most to be fleshed out in subsequent speeches — make clear her party’s turn away from its Reagan-era tilt toward markets as the fix for markets’ problems. Systemic underinvestment and underemployment require setting up a public-private infrastructure bank and reforming the capital gains tax to better reward shareholders who hold their stock for the long-term while discouraging in-and-out “activist investors” who prompt corporate boards to buy back shares to boost stock prices. Americans’ incomes must be raised by higher minimum wages, corporate tax policies that encourage more profit-sharing with employees and laws that make it easier for workers to form unions.
The roots of the new Clintonomics can be found in papers authored this year by economists and policy scholars who helped form the old Clintonomics: the more market-enamored policies that held sway during Bill Clinton’s presidency. In January, a commission convened by the Center for American Progress (CAP) and co-chaired by Lawrence Summers, who was Clinton’s treasury secretary when the Glass-Steagall Act was repealed, surprised some Summers-ologists by calling not only for more profit-sharing but also for stronger labor laws and even the establishment of works councils where workers, union or not, can confer with management on job-related issues.
Last month, the Brookings Institution published a paper by William Galston and Elaine Kamarck, both of whom served as center-right policy advisers in Clinton’s administration, that documented the transformation of the U.S. corporation into a machine that efficiently strips funding from investment and wages to reward shareholders and top executives. “While cash distributed to shareholders as a share of cash flow has surged to a record high during the past decade,” they wrote, “the share devoted to capital investment has fallen to a record low.” During the past two years, they continued, the growth rate of sales for the S&P 500 companies was 2.6 percent while earnings per share rose by 6.1 percent, chiefly because stock buybacks reduced the number of outstanding shares. To remedy this upward redistribution of income at the expense of productive investment, Galston and Kamarck call for repealing a Reagan-era ruling of the Securities and Exchange Commission that allows corporate managers to buy their own stock even as they boost the share price by initiating a buyback. They call for requiring shareholders to own stock for long periods to qualify for the lower capital gains tax rate.
Just as Adolph Berle and Gardiner Means’s 1932 book, “The Modern Corporation and Private Property,” helped shape the New Deal’s economic policies, so the CAP and Brookings studies have clearly influenced the perspectives of the current Democratic front-runner. It’s important to note, however, that those studies draw from the findings of more progressive economists, many of whom were critics of the deregulatory proclivities of Clinton’s presidency. These papers build on studies conducted over many years by the Economic Policy Institute and the work of such economists as Joseph Stiglitz, Dean Baker and William Lazonick, whose research into the rise of stock buybacks is increasingly influential across the Democratic spectrum.
To remedy the ills of shareholder-uber-alles capitalism, however, Hillary Clinton will have to go beyond the commendable policies she’s laid out thus far. Corporate tax policy should reward not just profit-sharing but also companies’ provision of pay increases to workers that match (or exceed) the combined rates of productivity and the cost-of-living increases. Since the distribution of income is ultimately determined by the distribution of power, corporate tax policy should also reward companies that embrace the German model of splitting their corporate boards between worker and shareholder-management representatives. It will take all of Bernie Sanders and Elizabeth Warren’s legions to push the Democrats this far, but that pressure is essential to creating a vibrant economy and a successful Clinton presidency.
Somehow, all knowledge of this transformation of corporations and the economy, through which Americans have suffered and which the Democrats now address, seems to have eluded the Republicans completely. Their economic sensors, and vision, are stuck in 1981, the first year of Ronald Reagan’s presidency. This is a form of brain death that voters are not likely to reward.
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